Are You Properly Reconciling Your Records?
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Are You Properly Reconciling Your Records?

Are You Properly Reconciling Your Records?

Many people think of bookkeeping as something just for large businesses and corporations. The reality is most basic principles of bookkeeping can apply to all levels of businesses and individuals. Let’s take for instance reconciling a bank or credit card account. In talking to business owners and individuals, the majority do not reconcile their accounts. For a business that is just starting out or struggling with cash flow, this can be a costly mistake.

What is a reconciliation? A bank reconciliation is a process where a company’s books, or check register is compared to the bank’s records using the bank statement. The process is looking for any difference between the company’s books and the bank’s records. Each transaction is verified individually. Any discrepancies need to be examined and corrected. It can be normal to see some minor differences. However, they should be easily identified and somewhat expected, such as an outstanding check that has not cleared the bank yet.

So, why reconcile? Many people use a bank login or an app on their phone to see their balance and feel as long as there is money in the account, it’s all good. However, reconciliations are multipurpose. They verify books are accurate, catch fraud, and discover administrative issues.

Watching for fraud is a priority when reconciling. Know that between employees and cyber criminals, fraud is on the rise everywhere. Also know that business bank accounts, in general, receive less protection than consumer accounts under federal laws. The bank does not necessarily cover fraud or errors in a business account. Businesses must find and stop these problems quickly. 

Reconciling helps to see:

  • Duplicated checks (same check number clearing twice with different information)
  • If checks have been changed or altered (different than what was approved)
  • If checks were issued without authorization
  • Unauthorized transfers, debits or withdrawals
  • If all deposits are accounted for 
  • If deposit amounts are correct,

What about administrative issues? Cash flow is No.1. It is important to know how much cash is really available in all accounts. All businesses want to avoid bouncing checks or failed electronic payments due to insufficient funds. This can lead to a change in terms with vendors or suppliers, additional fees to the vendor to cover any fees charged to them, cancelation of vendor line of credit or decrease in vendor line of credit. Not to mention bank fees, which is wasted money. 

If all transactions are entered timely and accurately, cash flow can be correctly managed with weekly reconciliations.

How often to reconcile depends on the volume of transactions. A weekly reconciliation review is recommended, however, at the very least, all accounts should be reconciled once a month with the bank or credit card statement. 

 

Sharon Dubois is NACB certified bookkeeper and co-owner of United States Bookkeeping Co. As a QuickBooks ProAdvisor, she works with entrepreneurs in a variety of businesses teaching them how to read and understand their company’s financial reports and how they relate to day-to-day operation of their business. In her spare time, Sharon is busy with the Marine Corps League and the American Legion Auxiliary.

 

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